Friday, May 25, 2007

But I do know what "unconstitutionally vague" is.

As if we needed more proof that Democrats don't understand economics, the U.S. House of Representatives passed legislation to combat so-called "price gouging" at the gas pump.

Laws prohibiting taking undue advantage of lifeboat situations, e.g. charging someone about to die of thirst a million dollars for water, are something virtually everyone except Walter Block (famed defender of the undefendable) could see as acceptable were such practices to become a problem. Their absence from the books is a sign that inherent rarity, market forces, common decency, charity, and the protection bankruptcy gives against debt slavery combine to make the one case that even a liberal like myself would restrict more of an academic question than a real-world concern.

Outside of the lifeboat context, however, I don't know what price gouging is. But I do know that this new law is either toothless or unconstituionally vague. (Never mind, ad argumentum whether a gas station's sale to someone at the pump is an act of interstate commerce.) Let's take a closer look.

HR 1252 makes it unlawful to sell gasoline, during a declared emergency, at a price that is "unconscionably excessive" and "indicates the seller is taking unfair advantage of the circumstances related to an energy emergency to increase prices unreasonably." Whether a price falls into this category will be determined by some unspecified mix of factors, necessarily including, "among other factors", four listed criteria:

(A) whether the amount charged by such person for the applicable gasoline or other petroleum distillate at a particular location in an area covered by a proclamation issued under paragraph (2) during the period such proclamation is in effect--

(i) grossly exceeds the average price at which the applicable gasoline or other petroleum distillate was offered for sale by that person←→ during preceding the 30 days prior to such proclamation;

(ii) grossly exceeds the price at which the same or similar gasoline or other petroleum distillate was readily by other purchasers obtainable in the same area from other competing sellers during the same period;

(iii) reasonably reflected additional costs, not within the control of that person, that were paid, incurred, or reasonably anticipated by that person, or reflected additional risks taken by that person to produce, distribute, obtain, or sell such product under the circumstances; and

(iv) was substantially attributable to local, regional, national, or international market conditions; and

If the "other factors" provision doesn't do this one in, Constitutionally, all by itself, (i-iv) in conjunction kill it. (i) says the price must be high due to the disaster. Big deal. Why the bill's sponsors didn't realize that implicit in (ii) is the reason--near absence of true geographic monopoly in the retail gas market is beyond me, although (iii) provides a clue. It's a leftist's understanding of the proper circumstances under which to raise prices. Forget supply and demand--forget that, especially for commodities such as gasoline, replacement costs set the price--cost-plus is the justification for social democrats baffled by the prestidigitation of the invisible hand.

It is (iv) which unravels all of this, as whether or not the price was increased due to market conditions must also be taken into account. Assuming that gas retailers and wholesalers will act reasonably in their own interest in the market, it's hard to imagine prices going up above a level justified by market conditions. That is, assuming that mainstream economic science is used to determine whether or not the price level is attributable to market conditions.

If physics were treated with as much disregard as economics, we'd see headlines in CNN Money saying, about some bill, that "critics say the Department of Energy's plan violates conservation laws." As Jeff Jacoby patiently explained to the readers of the Boston Globe, prices go up during a disaster for the same reasons as they would in normal circumstances. The supply chain gets constricted or broken, demand subsequently increases, merchants see their wares get scarce, and raise the price as a result, so they don't run out of things to sell. The result is in the public interest, as it means people think twice before buying--cutting down on hoarding and frivolous use and inducing hoarders to sell--and sends a signal to outsiders that profit is to be made by delivering more. The same laws of economic science apply to shortages of gasoline and microchips.

If (iv) is not determined by mainstream economics, or if in practice the four criteria above aren't treated as each being necessary, then the law does have some teeth, in that it will provide a few gas stations or oil companies a headache until, much taxpayer money spent on legal defense later, it's proven unconstitutionally vague. Given precedent, that result is the one certainty that applies to HR 1252.

Millions in defense of clearly unconstitutional law is too high a price to pay for mere political posturing. Let's hope the Senate kills this one. And would that Congress went (prudently) after the real market-manipulating culprits instead!

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